Holiday Pay – Revisited...

As the leading case on the implications of results-based commission and statutory holiday pay (British Gas Trading Ltd v Lock and another UKEAT/0189/15), awaits judgment in the Court of Appeal, we set out a recap on what currently should and shouldn’t be included in the calculation of holiday pay.

The following elements of remuneration should be included in the calculation of holiday pay for Working Time Directive (“WTD”) leave (i.e. 20 days’ holiday per annum for full time workers), assuming they are intrinsically linked to the performance of contractual duties:

  • Commission payments.
  • Incentive bonuses.
  • Overtime that workers are required to perform, regardless of whether it is guaranteed. Overtime premiums should be taken into account.
  • Payments that relate to the "personal and professional status" of workers, such as those based on seniority, length of service or professional qualifications.
  • Productivity/performance bonuses.
  • Shift allowances and premiums (additional rates for working particular shifts, such as "time and a half").
  • Standby payments and payments for emergency call-out duties.
  • Travel and other allowances that are treated as taxable remuneration.

It is also worth noting a recent decision by a first instance Tribunal. It ruled that voluntary overtime payments made once a month over a number of years were sufficiently regular to constitute “normal pay” and therefore should be included in the calculation of holiday pay (Brettle v Dudley Metropolitan Borough Council). Whilst this judgment is a first instance decision and technically not binding, it indicates the position of Tribunals in relation to the calculation of holiday pay.

The following elements of remuneration should not be included in the calculation of holiday pay for WTD leave:

  • Benefits in kind.
  • Bonuses not linked to workers' performance.
  • Expenses (including travel expenses) which reimburse workers for costs incurred.
  • One-off bonuses and occasional payments.
  • Workers placed on garden leave are not entitled under EU law to pay in lieu of accrued holiday they could have taken during garden leave.

If you have any questions arising from this article or would like further information on holiday pay and UK employment law, please get in touch with a member of our Employment team.